India is happy to buy oil from Russia at a steep discount but not eager to sell essential goods  

Given its economic potential and geographical proximity to Russia, India should rank among the first in the Russian Federation's international commerce, argues Valentin Yuryevich Katasonov, a Russian scientist-economist and Doctor of Economics.

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Joseph P Chacko
Joseph P Chacko
Joseph P. Chacko is the publisher of Frontier India. He holds an M.B.A in International Business. Books: Author: Foxtrot to Arihant: The Story of Indian Navy's Submarine Arm; Co Author : Warring Navies - India and Pakistan. *views are Personal

India’s economy is huge and one of the world’s largest. In terms of GDP, it ranks third after China and the United States. Given its economic potential and geographical proximity to Russia, India should rank among the first in the Russian Federation’s international commerce, argues Valentin Yuryevich Katasonov, a Russian scientist-economist and Doctor of Economics in the journal Ko.

According to the economist, India was not even among Russia’s top ten trading partners until recently. Everything changed last year following Russia’s abrupt shift to the east. Nonetheless, there is a significant imbalance between imports and exports. According to Valentin Katasonov, India is happy to buy oil from Russia at a deep discount but is not eager to export the essential commodities to avoid Western sanctions. The following is the gist of his opinions regarding the topic.

In 2020, India contributed only 1.63% of Russia’s overall trade turnover with other countries. It ranked 16th on the Russian list of trade partners.
India accounted for 1.72% (15th place) of Russian exports in 2020 and 1.49% of Russian imports (16th place).

Substantial changes in the geographical structure of Russia’s foreign commerce began last year in response to events in Ukraine and collective Western sanctions. As a result, Russia reoriented itself towards the east, resulting in a growth in Russia’s trade with China and India. Since the Russian Federal Customs Service (FCS) shuttered a substantial portion of its statistics a week after the commencement of the special military operation in Ukraine, it has been difficult to evaluate the current changes fully. As a result, one must rely on other sources, i.e., customs statistics from Russia’s trading partners.

However, the FCS 2021 international trade data were published before the start of the conflict, and  Russia’s trade turnover with India was $13.5 billion, a 46.5% increase over 2020. In the ranking of commercial partners, India has risen from 16th to 14th. At the same time, Russia was an even less important partner for India. It ranked only 25th among India’s commercial partners. According to the FCS, Russian exports to India were $9.1 billion, while imports from India totalled $4.4 billion.

The bilateral trade deficit is instantly noticeable; Russian exports to India are more than twice as large as Russian imports from India. Yet, it was a feature of Russian-Indian trade before the conflict.

Mineral items accounted for 31.87% of Russia’s exports to India in 2021, followed by machinery, equipment, automobiles (19.88%), and precious metals and stones (18.44%).

Chemical products accounted for 31.70% of Russian imports from India in 2021, machinery, equipment, and automobiles accounted for 29.94%, and food products and agricultural raw materials accounted for 16.34%. Despite pressure from Washington, London, and Brussels, India did not join the collective West’s anti-Russian sanctions last year. This has been India’s trajectory for the past 75 years since its independence from the United Kingdom. Then India decided to avoid military-political alliances while retaining excellent neighbourly economic connections with major partners. As a result, New Delhi partially repaid Moscow for its losses.

The profile of Russian-Indian trade over 2022 is still incomplete. As per Indian customs agencies, from January to August 2022, trade between Russia and India increased by 130% every month, reaching $17 billion for eight months. This sum was $3.2 billion in the same period in 2021. Interestingly, out of $17 billion in trade, $16 billion represented Russian exports to India, and around $1 billion represented Indian imports. Imports fell somewhat annually: $1.32 billion in the first eight months of 2021 and $992.7 million in the same period of 2022.

The supply of Russian oil to India was the reason for such significant export growth. According to energy analytics data from most sources, New Delhi doubled its oil purchases from the Russian Federation due to substantial discounts. Moscow dethroned Riyadh and Baghdad to become India’s largest black gold exporter (22% of Indian imports, or 4.03 million tonnes). As per  Vortexa, a British analysis firm, the crude oil delivery to India from selected countries in November 2022 (thousand barrels per day),  Russia scored 909.4, Iraq scored 861.4, Saudi Arabia scored 570.9, and the United States scored 405.5. Reuters has added additional figures to the picture of British analysts. In November, India purchased around 40% of all seaborne export volumes of Russian Urals oil. European countries retained 25% of the total, while Turkey retained 15% and China retained 5%. India is quickly overtaking Russia as Russia’s primary oil client.

Russia cannot help but be concerned about the bilateral trade imbalance. In the months following the commencement of the anti-Russian sanctions war, Indian exporters were cautious and halted several exports to Russia, fearing secondary repercussions. Exports were gradually introduced through new supply chains, preventing secondary penalties. In this regard, India has an easier time avoiding secondary sanctions than China. In fact, until recently, trade with the Russian Federation was dominated by large and super-giant corporations having most of their business interests in the West rather than in Russia. Trade with Russia was primarily conducted in India by medium-sized businesses, which are a priori weakly vulnerable to secondary Western sanctions. Moscow has identified New Delhi as a supply conduit for hundreds of commodities Russia cannot buy due to sanctions imposed on it. This was one of the primary topics discussed at the November 8 meeting in Moscow between Russian and Indian Foreign Ministers Sergei Lavrov and Subramanyam Jaishankar, which was dedicated to trade and economic cooperation between the two countries.

The summit confirmed the parties’ intention to initiate the North-South International Transport Corridor, the Chennai-Vladivostok Eastern Sea Corridor, and other logistics projects to help bilateral commerce. Given India’s specific interest in Russian hydrocarbons, the Indian minister confirmed the intention of Indian investors to join in projects for their production, notably in the Russian Far East and Arctic shelf.

The ministers noted the effective cooperation in the “peaceful atom” and the successful construction of the nuclear power plant “Kudankulam” in India. New NPP projects are being prepared, in the construction of which Rosatom will participate. For many years, Moscow and New Delhi have been supporting and developing military-technical cooperation, which the parties do not advertise very much, but which is very annoying to the West, which is trying to drag India into the NATO network. Lavrov said that Russia attaches great importance to space exploration in areas such as satellite navigation, space science, and manned programs.

According to the Indian minister, New Delhi is just as concerned as Moscow about the trade imbalance. Jaishankar said he advised the Russian side on resolving the issues impeding Indian exports and expansion. The Indian Foreign Minister also met with Denis Manturov, the Russian Minister of Industry and Commerce, and stated that New Delhi is ready to export spare parts for Russian trains, cars, and aircraft. This will aid in the restoration of the bilateral trade balance.

Both sessions of the Indian ministers in Moscow stated a figure: the parties expect to quadruple their trade turnover in the near future, though no time frame was given. If one starts counting from 2021, commerce between Russia and India should reach $27 billion. Yet, according to certain indications, this milestone has already been surpassed.

Since March of last year, the FCS has not released any international trade statistics, but it occasionally permits premeditated “information leaks” on occasion. The 13th event, “Business Dialogue Russia – India,” was held in Moscow at the end of last year. According to preliminary data, the commercial turnover between Russia and India would top $30 billion in 2022, a record, according to Deputy Chief of the Federal Customs Service of Russia Vladimir Ivin, who spoke at the conference.

Furthermore, FCS officials stated that Russia’s commerce with some friendly countries should increase significantly by the end of 2022. According to them, trade with China will increase by 30%, while trade with Iran will increase by 20%. Nonetheless, India should be crowned champion. The FCS predicted a 2.5-fold increase in trade with India. This is more than $30 billion. According to the Indian Ministry of Industry and Commerce, Russia has risen from 25th to 7th place on India’s list of trading partners in 2022. Despite the evident progress towards each other, correcting the import/export imbalance will take years of hard labour.

Another important issue is the huge discounts Russian oil producers offer Indian buyers (up to 30% and occasionally 40% off the market price). Certainly, there was a critical point when Russian exporters had to supply oil to India at a loss (and some experts say it was definitely at a loss). India are already accustomed to extraordinarily cheap oil, but Russian suppliers cannot continue to labour on the verge of a disaster.

One critical issue is the currency used in trade settlements. Thus far, US dollars and euros have dominated trade transactions between Russia and India. Moscow and New Delhi both know that these “toxic” currencies must be abandoned. The first steps towards shifting to national currencies – Russian rubles and Indian rupees – have been taken. Yet, these currencies are extremely volatile, with minimal convertibility. Accounts in Indian rupees are already being opened in Russian and Indian banks for participants in the Russian-Indian trade. But Russian partners are suspicious of the Indian rupee as it has lost more than 25% versus the Russian ruble and 10% against the US dollar in the last two years.

But, the Russian ruble and the Indian rupee have the undeniable advantage of shielding transaction participants from collective Western sanctions. Nevertheless, the disadvantages of national currencies might be compensated by benefits such as increased Indian exports to Russia (Indian exporters will not be afraid of secondary sanctions). And if ever Russian-Indian commerce is balanced in the future, the two countries can consider the next stage – the transfer to currency clearing settlements.


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